[Obayashi] Real Estate Development — 18.7% Margin, ¥287.7bn Unrealized Gains

Note: This article is a factual summary based on Obayashi Corporation’s published IR material (Investors’ Guide, June 2026 edition). It is not a recommendation to buy or sell any security. Figures are as of the publication of the source material. Investment decisions are your own responsibility.

Real estate development is the smallest of Obayashi’s five business segments by sales, but by a wide margin the most profitable. On FY2025 consolidated net sales of just ¥106.7bn, the segment generated ¥19.9bn of operating profit — an 18.7% margin, well above the margins earned in either domestic construction segment (9.1% for building, 9.6% for civil engineering). This page of the Investors’ Guide 2026 sets out how that margin is earned, what the portfolio looks like, and where the business is headed.

FY2025 snapshot

Item	FY2025
Consolidated net sales	¥106.7bn
Consolidated operating profit	¥19.9bn
Operating margin	18.7%
Profit target	Secure consolidated operating profit of ¥20.0bn
Book value of real estate held for lease	¥573.7bn
Market value of real estate held for lease	¥861.4bn

The gap between those last two lines is the headline number for this business: real estate held for lease is carried on the books at ¥573.7bn but is worth an estimated ¥861.4bn at market — an unrealized gain of roughly ¥287.7bn sitting on the balance sheet. Under Japanese accounting practice, investment property is generally carried at cost less depreciation rather than marked to market, so this kind of appreciation doesn’t flow through reported profit until a property is actually sold. That gap is effectively a store of latent value the company can crystallize on its own schedule — which is precisely what the sales side of its ‘agile property sales’ strategy is designed to do.

Strategy: income first, capital gains on top

Obayashi frames the segment’s earnings base as stable income gains from competitive assets, with capital gains and sustainable profit growth added on top through a cycle of agile property sales and new project investment. Two further strategic threads run alongside that core income-plus-sales model.

• Expand the non-asset business — asset management, property management, and building maintenance — by using private funds set up by a group company as exit vehicles for sold assets
• Differentiate properties through environmental certifications and smart building solutions, aiming for higher value-added product

The non-asset push is worth flagging on its own: rather than simply holding property for rental income, Obayashi is building fee-based management businesses around the assets it sells into its own group-affiliated private funds — a way of keeping a revenue relationship with a building even after it leaves the balance sheet.

Portfolio mix and major projects

By value, the consolidated asset portfolio at the end of FY2025 was split as follows.

Asset type	Share of portfolio
Offices in Japan (mainly Tokyo’s central five wards and central Osaka)	50.7%
Overseas offices (London and Bangkok)	28.1%
Logistics facilities (mainly the Tokyo metropolitan area)	10.8%
Rental apartments and others	10.4%

Domestic and overseas offices together make up close to four-fifths of the portfolio, with logistics and residential assets splitting most of the remainder. Major projects the company highlights include GRAND GREEN OSAKA, Yokohama Symphostage, OAK LOGISTICS CENTER NAGOYA, and the redevelopment of 60 Gracechurch Street in London — a spread that mirrors the portfolio mix itself, from a large domestic mixed-use development through to an overseas office redevelopment.

Investment plan and what this means for investors

Under the Medium-Term Business Plan 2022, real estate development is allocated ¥300.0bn of investment — structured as ¥140.0bn of planned property sales funding ¥160.0bn of net new investment. That recycling model — sell mature, income-producing assets, then redeploy the proceeds plus fresh capital into new projects — is the mechanism behind both the income and capital-gains legs of the strategy above, and it is the single largest line inside the group’s overall ¥750bn Medium-Term Business Plan 2022 investment envelope; see the investment plan breakdown for how it compares with the group’s other six spending categories.

Real estate’s investment plan also sits inside the group’s broader five-year financing picture. The cash allocation plan (p.26) funds group-wide investment from four sources — roughly ¥480bn of operating profit over five years, ¥120bn of depreciation, around ¥260bn from selling cross-shareholdings, and up to ¥200bn of leverage — and real estate’s own ¥300.0bn allocation sits inside that group-wide total. For how this segment’s 18.7% margin compares with the rest of the portfolio and why the company sees development as synergistic with its core construction business, see the company overview and value creation process pages.

This article is part of our complete breakdown of the Obayashi Investors’ Guide 2026. See the hub article for the full series.

Note: This article is a factual summary based on Obayashi Corporation’s published IR material (Investors’ Guide, June 2026 edition). It is not a recommendation to buy or sell any security. Figures are as of the publication of the source material. Investment decisions are your own responsibility.